The Cash Store (TCS) ran a nationwide business offering
short term, low value payday loans on behalf of another company,
ASA, from which it was funded. The loans were for up to AUS$2,000
and TCS would lend up to between 35% and 50% of the customer's
next scheduled pay packet. Many customers had multiple or
TCS also marketed to its customers a form of consumer credit
insurance (CCI) called a "payment protection
plan". This was charged at a fixed percentage of the loan
amount. It was intended to cover death and dismemberment,
disablement, cancer, heart attack or stroke, involuntary
unemployment and catastrophic illness.
ASIC alleged that TCS and ASA had both breached their
responsible lending obligations. It also alleged that TCS had
engaged in unconscionable conduct in selling borrowers the CCI
The contraventions related to over 325,000 credit contracts.
ASIC tendered a representative sample of 281 contracts for the
purposes of establishing liability. It reserved its position on the
question of how the Court could and should extrapolate its
liability findings across all 325,000 contracts.
The Court found that TCS had breached numerous provisions of the
Loan officers routinely failed to make the requisite enquiries
and undertake verification before arranging loans; routinely failed
to inquire about purpose and objectives and about expenditure and
other liabilities; and even when enquiries were made, routinely
failed to verify the financial position. While TCS operated some
sort of safety check process, this appeared to be a tick off
exercise rather than a serious examination of the issues which TCS
was bound to consider.
The breaches by TCS were also breaches by ASA as the credit
The Court also held that the CCI was unconscionable. ASIC had
provided actuarial data which indicated that the value of the
insurance policy was extremely low on any available measure. The
likelihood of most of the insured events occurring within the very
short cover period was low.
The value of disablement and involuntary unemployment cover was
extremely low when the average period of cover was less than two
weeks and non-existent for loans for one day. CCI was sold to
unemployed customers despite the fact that they were unlikely to
receive a benefit from the insurance.
The court made declarations that TCS and ASA had breached the
reasonable lending provisions and that TCS had engaged in
unconscionable conduct. The question of penalties is reserved for a
The information in this article is for informative purposes
only and should not be relied on as legal advice. Please contact
Chapman Tripp for advice tailored to your situation.
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